If a nation fitting the criteria for the small nation model imposes a 10 percent tariff on imports of autos ?
Correct answer: A. The price of autos within the nation will rise by 10 percent
- A. The price of autos within the nation will rise by 10 percent
- B. The price of autos within the nation will rise by less than 10 percent
- C. The price of autos within the nation will rise by more than 10 percent
- D. The price of autos will not rise because of internal competition
Explanation
Under the small-nation assumption, the country cannot influence the world price, so a 10 percent tariff raises the domestic price by the full 10 percent. A large country may experience a smaller rise because its reduced demand can lower the foreign export price.
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